A Washington, DC, resident may have a cause that is close to his or her heart, and he or she may want to give a portion of his or her estate to a charity that champions that cause. Of course, it is possible to donate directly to the charity, but in some cases, it may make more sense to establish a charitable trust. Charitable trusts can be set up in a number of ways to benefit its creator, his or her heirs and the organization.
Once an amount is decided upon, the principal goes into the trust. What happens from here depends on the preferences of the Washington, DC, resident. If he or she would like to receive payments of interest on the principal amount during his or her life, it can be set up as a living trust. The benefactor can receive payments during life, and then upon his or her death, the principal can be distributed to the charity.
In the alternative, the principal can continue to earn interest until the death of the trust's creator. Heirs can receive distributions above the original amount for a specified period. At some point, the principal can then be given to the organization for which the trust was created. Conversely, the trust can be given the principal amount, and heirs can be given the remainder of the funds.
As shown here, charitable trusts can be set up in a variety of ways. Which way will work best for a particular individual depends largely on his or her estate-planning goals. Once a decision is made, these trusts -- like others -- must be set up in compliance with federal and state laws in order to be considered valid. Therefore, it may be beneficial to consult with someone familiar with how trusts are set up to ensure that a person's wishes are carried out.
Source: insidephilanthropy.com, "Dept. of Murky Money: What the Heck is a Charitable Trust?", Frank A. Monti, Feb. 13, 2015